The picture above tells a story: it is a throwback to the glory days of the Volkswagen Corporation. Like my father before me, I’m a big fan of VW cars having been the owner of quite a few of the Corporation’s models. They were all terrifically reliable cars and I have no axe to grind here. What I should say is that none of my cars had a diesel engine.
VW cars with diesel engines are significant here because, in recent times, the manufacturer deliberately marketed them as environmentally friendly. Consumers could, therefore, purchase diesel cars from VW with something amounting to a clear conscience because they were not as bad for the environment as some of the older models.
Several years ago, VW was exposed for deliberately falsifying its data about the impact of environmentally harmful emissions caused by its diesel engines. It was a huge scandal and regulatory authorities in the United States of America imposed huge fines on the Corporation. Consumers in the USA also decided to pursue class legal actions against VW on the grounds of these patently fraudulent misrepresentations.
The scandal somewhat predictably and unimaginatively gained the moniker ‘Dieselgate’ and its ramifications were soon felt in the United Kingdom (of which we shall touch upon shortly in this Blog).
Yes, Dieselgate is back in the news. The scandal of VW deliberately falsifying emissions data in respect of its diesel engine models was a topic of debate at a class action hearing before the English High Court yesterday.
In Anthony Joseph Champion Crossley & Ors v Volkswagen Aktiengesellschaft and Others  EWHC 783(QB), Mr Justice Waksman has determined that VW did insert what has become known as a ‘defeat device’ in its diesel engines. This device was rigged to ensure that when emissions tests were being carried out, a lower reading would be recorded. This would allow VW to claim that such diesel engines were much more environmentally friendly.
This is only a first, but important step, nonetheless, for purchasers and users of VW vehicles. The crux of the matter will be whether the emissions data published by VW was a material factor behind the decision of drivers to choose the manufacturer’s products. Cars are purchased for a multitude of reasons and it will be of critical importance for the consumers in this class action to demonstrate that environmental factors were a major reason for their decision to choose vehicles manufactured by the VW group.
A link to Mr Justice Waksman’s judgement and link to a BBC article about it can be found below:
The High Court rules that the German firm installed ‘defeat devices’ in vehicles to cheat emissions tests.
Categories of misrepresentation
Misrepresentation comes in three sizes:
- Innocent – the false statement is honestly made
- Negligent – the false statement is carelessly made
- Fraudulent – there is conscious dishonesty and the false statement is deliberately made.
If you are still in any doubt, VW’s claims about its diesel engines falls very much into the category of fraudulent misrepresentations.
This takes into the area of contract law known as misrepresentation i.e. where one party makes a false statement which induces or encourages the other party to enter a legally binding agreement. The false statement is the clinching factor in that it persuades or influences someone to enter a contract.
We have to be careful, however, because false statements of themselves do not necessarily affect the validity of contracts. A party might say something that is false, but it may have absolutely no bearing on the other person’s reasons for entering the contract.
The legal consequences of misrepresentation
A misrepresentation has the potential effect of making a contract voidable i.e. it may provide grounds for cancelling the agreement.
If an innocent party brings a successful claim for misrepresentation, she has a number of remedies:
- Restitutio in integrum or rescission – where the parties are returned to their pre-contractual positions – if this is possible; and/or
- Damages – in Scotland, this is only possible for negligent and fraudulent misrepresentations. Under English law, the Misrepresentation Act 1967 permits an innocent party to sue for damages in respect of an innocent misrepresentation.
There is nothing to prevent an innocent party upholding the flawed agreement and suing for damages (as in the well known Scottish case of Smith v Sim 1954 SC 357 where the new owner of a pub sued the previous owner for falsely inflating the turnover figures for the business, but critically he decided to keep the property).
When discussing the consequences of misrepresentation, I often highlight a number of cases where a false or misleading statement was made but, ultimately, this had little or no bearing on the other person’s decision to enter the contract.
In Attwood v Small (1838) 6 Cl & Fin 232, the owner of a mine made deliberately fraudulent statements about its production capacity. The prospective purchaser of the mine was not in the least bit swayed or influenced by these misrepresentations. Why? He decided to bring in his own surveyor to evaluate the capacity of the mine. The surveyor’s conclusions were broadly in accordance with that of the mine owner. Critically, however, it was the surveyor’s conclusions which persuaded the purchaser to enter the contract – not the original misrepresentation. The contract was not voidable and would stand. The purchaser, of course, would have a potential claim against the surveyor for negligence.
In Smith v Chadwick (1884) 9 App Cas 187, an action was brought by Smith, a steel manufacturer, against Messrs Chadwick, Adamson and Collier, who were accountants and promoters of a company. Smith claimed an amount of money as losses caused as a result of his decision to buy shares in the company, which were worth much less than what he had originally paid. The basis of Smith’s claim was that the company prospectus issued by Messers Chadwick, Adamson and Collier had contained several instances of false information. Among the misrepresentations that Smith identified was the statement that a particular Member of Parliament was a director of the company. In fact, this particular individual had withdrawn from the company the day before the prospectus was issued.
Held: the statement about the Member of Parliament – though clearly false – was not material because Smith had never heard of this individual. His decision to buy shares in the company had not been influenced in any way by this piece of information. Consequently, his action for damages was dismissed by the court.
Yesterday’s decision of the English High Court in Anthony Joseph Champion Crossley & Ors v Volkswagen Aktiengesellschaft and Others  EWHC 783(QB) is only a first, but important step for purchasers and users of VW vehicles in the UK.
The crux of the matter will be whether the emissions data published by VW was a material factor behind the decision of drivers to choose the manufacturer’s products. Cars are purchased for a multitude of reasons and it will be of critical importance for the consumers in this class action to demonstrate that environmental factors were a major reason for their decision to choose vehicles manufactured by the VW group.
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Copyright Seán J Crossan, 7 April 2020